[UPDATED] UnitedHealth Group to Acquire LHC Group for $5.5 Billion

UnitedHealth Group (NYSE: UNH) has agreed to buy LHC Group (NASDAQ: LHCG) for a reported $5.5 billion. The insurance company will integrate LHC Group with its existing home health asset, Optum Health.

The massive deal follows last year’s acquisition of Kindred at Home by United’s competitor, Humana Inc. (NYSE: HUM) for $5.8 billion. The two transactions signal payers’ growing interest in the provider space. 

Both acquisitions are among the largest in recent memory among hospice or home health companies.

“Since our founding in 1994, ‘it’s all about helping people’ has been the core of our mission, and as part of the Optum team and its value-based capabilities, we will be able to expand our patient-centered mission and help drive best care practices across the country,” said Keith G. Myers, LHC Group’s chairman and CEO. “Working together as organizations committed to caring for the most vulnerable in society will help us more effectively and efficiently deliver high quality and increasingly value-based care in the home.”

The purchase agreement reportedly calls for United to acquire LHC Group’s common stock for $170 per share in case. The companies expect the transaction to close during the second half of the year.

A Lafayette, La.-based hospice, home health and facility- and community-based care provider, LHC Group has locations across 37 states and the District of Columbia, reaching 60% of the country’s 65 and older population.

The company last year saw a record number of its own acquisitions, with the crown jewel being the purchase of home health and hospice operations in 22 states from the joint venture between Brookdale Senior Living (NYSE: BKD) and hospital system HCA Healthcare (NYSE: HCA).

The transaction included 11 hospice, 23 home health and 13 therapy locations. LHC Group expects these assets to generate nearly $146 million annually, but the sale price was not disclosed.

The company’s overall revenue rose by 7.6% in 2021, reaching $2.22 billion. At more than $3.1 million, the hospice segment accounted for 14.1% of this revenue, up from $2.4 million in 2020.

Looking ahead, LHC Group expects revenue in 2022 to be in the range of $2.5 billion to $2.55 billion, though these numbers were projected prior to the UnitedHealth announcement.

“LHC Group’s sophisticated care coordination capabilities and its warm, human touch is so important for home care, and will greatly enhance the reach of Optum’s value-based capabilities along the full continuum of care,” said Wyatt Decker, CEO of United subsidiary Optum Health.”

A number of market conditions are coalescing to make home-based care providers attractive to payers and other investors.

The COVID-19 accelerated the movement of care away from institutions and towards the home, a trend driven initially by consumer preferences and unsustainable costs of supporting the growing senior population in high acuity settings.

An aging Baby Boomer generation has swelled health care costs as it moves across the care continuum. Since 2011, roughly 10,000 people become Medicare eligible each day, a rate that’s projected to remain a steady climb of continuation until around 2030, according to a Medicare Payment Advisory Commission (MedPAC) report.

This has awakened interest in home-based care investments among not only insurance companies like UnitedHealth and Humana but private equity firms, venture capitalists and other health care organizations.

“COVID kind of proved to the country that home health can step up; hospice can step up and play a larger role in finding a solution, especially under emergency conditions,” Mark Kulik, managing director at mergers-and-acquisitions firm The Braff Group, told Hospice News. “The second thing is we’ve known that the home has been the cheapest venue to deliver care.”

Adding fuel to the fire is the drive towards value-based payment models in Medicare and Medicaid.

Among the most prominent of these models is the Medicare Advantage program, which currently accounts for close to half of Medicare beneficiaries, according to the Kaiser Family Foundation.

While fee-for-service Medicare currently represents the lion’s share of home health reimbursement and virtually all for hospice, that may be unlikely to remain the case in the long term.

The Center for Medicare & Medicaid Innovation (CMMI), charged with developing and testing new payment models, on multiple occasions has affirmed its intent to align every beneficiary with an accountable care plan by 2030.

The agency is currently testing the inclusion of hospice within Medicare Advantage through the value-based insurance design (VBID) demonstration.

These actions, according to CMMI, will bring reduced health care costs and improved quality — but it also means that providers will be taking on greater financial risk.

By controlling both the payer and the provider sides of that equation, companies like UnitedHealth likewise have more control over the risk.

“It goes to the heart of the issue of how do you best manage the risk of caring for a patient, and what’s the best way to do it,” Kulik said. “Obviously, owning something gives you complete control over the delivery of the final product, and theoretically over the outcomes of the final product, which allows you to better manage the risk.”